Member Article

2015 was a record year in the Hungarian M&A market. Both in terms of value and number of transactions, 2015 was the best year since 2008, with approximately 160 closed transactions and an aggregate value of approximately EUR 2 billion. Although the acceleration follows global trends, the Hungarian market has a few specifics that will further enhance a growing M&A market in 2016 as well.

GLOBAL PERSPECTIVESIntralinks Deal Flow Predictor, a survey of 680 global M&A professionals, shows that a majority of professionals are optimistic about the global M&A environmentand expect more deals in 2016. While US news is mixed (there is uncertainty following U.S. interest rate increases and the impact of an economic meltdown in China, despite positive growth numbers), Europe can expect positive financial developments, such as economic growth in Western European countries and a likely increase in the European Central Bank’s quantitative easing policies. In addition to this mildly positive market environment, technology will likely also result in more effective and numerous M&A transactions in two aspects. First, technology provides businesses and M&A professionals with new tools and solutions (various cloud services, social deal sourcing, etc.) to increase the effectiveness of M&A deals. In addition, disruptive technologies drive M&A deals from a different angle as well: traditional companies without significant innovation backgrounds, fearful of being left behind in the market, are trying to buy disruptive information and technology companies to secure their future markets.

REGIONAL AND LOCAL TRENDSM&A markets are growing in Central and South Eastern Europe – especially in Poland, Hungary, Serbia, and Bosnia Herzegovina. While US and UK investors remain active within the region, which also sees more and more investments from China,South Korea, and Japan, the majority of deals remained local.

The increase in M&A transactions in Hungary started in 2013, and both deal structures and the legislative and economic background suggest a continuing growth. Based on the report of EY Hungary, 61 percent of M&A transactions in Hungary involved local parties, followed by US and German investors. The high ratio of local deals is partly the result of the Hungarian state, or state-owned entities, remaining active on the M&A market, a phenomenon that will most probably last through 2016 as well.

The IT and high technology sectors will probably continue to provide exciting investment opportunities for private equity and venture capital firms in the CEE region. The partially EU-funded JEREMIE (Joint European Resources for Microto Medium Enterprises) venture capital firms were highly active in Hungary in 2015 as they attempted to invest all their funds before the scheduled 2016 expiration of the investment. These smaller investments in Hungarian start-upswill enable them to develop and test the marketability of their products. Successful JEREMIE- funded start-ups in the coming years will require larger investments (in the EUR 10-20 million range), which will provide a rich investment opportunity for private equity firms and strategic investors. The regional start-up arena should also be prepared for the announcement of the new EU-funded JEREMIE venture capital programs of the 2014-2020 programming period. Member states in CEE secured significantly more EU funds for the venture capital programs in the 2014-2016 programming period than earlier and, after a lengthy preparatory period, programs can be expected to be launched in 2016 by CEE EU Member States and the European Investment Fund. The revival of commercial real estate deals in the region may be boosted further in Hungary thanks to the Central Bank of Hungary’s Mark Zrt. distressed-asset purchase program, announced for credit institutions. The program’s aim is to clean up credit institutions’ balance sheets from non-performing commercial real estate loans in order to boost fresh lending in Hungary, which may also speed up commercial realestate transactions as a result.

In brief, the growing M&A trend in the region seems to be sustained and may even be speeded up in the coming years.